How stable is Bitcoin by itself, what are the factors of its resilience, how did it behave during the previous market crisis, how safe is to invest in it or to use it in transactions, what are future predictions?
Bitcoin has been the world’s most valuable cryptocurrency for years and this isn’t likely to change anytime soon.
Not only is Bitcoin the token with the highest market cap, but it is also the most well-known cryptocurrency, essentially becoming the face of the industry. But even with all these, Bitcoin cannot escape the notorious price volatility that plagues the crypto sector.
Anyone who has watched the markets in the last year will attest that many of the major cryptos, Bitcoin included, have taken a massive price hit due to a number of factors. But just how resilient is Bitcoin, and what should investors know about the famous crypto?
How is Bitcoin’s Price Regulated?
Like most cryptos, Bitcoin’s price ultimately comes down to market forces of demand and supply. Bitcoin tokens are issued through a proof-of-work consensus and this dictates the supply of new tokens into the market.
Keep in mind that Bitcoin experiences what is called a halving every few years, which cuts these rewards in half. Whenever this happens, Bitcoin tends to see a spike in value since its supply has been artificially reduced.
Otherwise, Bitcoin’s price movements are dictated by how many people are buying and selling Bitcoin at any given time. Its demand is driven by people using it to buy goods and services, as a store of value, or even for gambling, as you’ll see in this crash gambling guide. As these uses of the coin become increasingly popular, it wouldn’t be surprising to see its price continue to rise.
Over the years, Bitcoin has seen several price slumps, including in 2017 and 2020. Dubbed ‘crypto winters’, these slumps have been known to last many months and the ripple effect is usually felt by other tokens as well. They are also usually followed by crypto critics declaring the industry dead.
How Resilient Has It Been?
While we acknowledge that Bitcoin has seen its market challenges over the years, it is also worth noting that the token has been quite resilient. Take 2020, for example, when the crypto winter was so bad Bitcoin was trading below $4,000 after seeing a previous all-time price high of almost $20,000. While some saw this as indicative of the death of Bitcoin as a whole, the token eventually bounced back to reach $29,096 by the end of 2020 and rose to a new all-time price high of $68,789 the next year. This is a consistent pattern with Bitcoin so far; it sees a major market slump for a while and usually bounces back even stronger.
These events have bolstered the faith that Bitcoin enthusiasts have in the token and many believe that each crypto winter will be resolved in a matter of time. The fact that Bitcoin has remained at the top of the crypto industry for over a decade despite all the challenges it has faced only reinforces this belief.
Why is it so resilient?
When you consider the issues stacked up against Bitcoin, it is easy to assume that the token would fail at some point. Many countries in the world like China have strong anti-crypto regulations and the market itself is not the most predictable. So how does Bitcoin continue to wax strong?
First, we need to look at its token-issuing mechanism. As we’ve explained, the token supply of Bitcoin was designed by its anonymous creator Satoshi Nakamoto to half itself every few years. This ensures enough supply to keep the ecosystem running but also low enough supply that it will not overtake demand.
Then we need to consider the use cases for Bitcoin. A lot of Bitcoin’s demand is driven by people who trade it speculatively. During market slumps, there is less speculative trading of Bitcoin, so this demand is reduced. At the same time, Bitcoin can fall back on its other use cases. As we’ve said, Bitcoin is used to pay for goods and services, for gambling, for storing value, and much more. So even when Bitcoin sees a hit to its speculative trading demand, it continues to stay afloat.
Then there is the growing institutional support for Bitcoin and other cryptos. If we look at the events leading up to the 2020 winter recovery, we’ll see that several mainstream companies like Tesla and PayPal announced that they would begin supporting the token. When Bitcoin begins getting that level of institutional backing, it is much harder for it to fail.
Finally, we need to account for the passionate community that is behind Bitcoin. The token was able to go from relatively obscure to being one of the biggest digital assets on the planet because it has such a committed user base behind it. When winters hit, passionate crypto lovers double down and decide to ride it out. To many, Bitcoin is not just an asset but a movement, and this keeps it resilient.
How Can You Safely Invest in Bitcoin?
Now that you know how resilient Bitcoin is and why, it is worth considering how you can safely invest in the token. The volatility that comes with Bitcoin and other tokens is a known fact, but investors can find ways to navigate it.
First, consider if you are a long-term or short-term investor. Investing in a token that is known to have several months of winter at a time will mean that you will have to be patient and wait out the harsh period. If this is not your style of investing, Bitcoin might not be the asset for you. If you are willing to invest under such conditions, it is important that you prepare yourself to wait out the winter if you will turn a profit.
It is also best to diversify your portfolio. Along with Bitcoin, there are several other cryptos in the industry that you can opt for, and not all are as volatile as Bitcoin. By diversifying, you can potentially bring in an income from your other tokens even while Bitcoin is going through a slump. This will ensure healthy returns and help you ride out the crypto winter.
Future Predictions for Bitcoin
Bitcoin is currently on its way out of its most recent winter period and many predict that like in previous times, it will make a recovery and do even better than before. Some analysts predict that it will exceed the $68,000 mark and even reach $100,000 at some point, but it is too soon to tell.
What we do know is that Bitcoin has survived its own volatility in the past, and we can expect it to continue with this pattern well into the future.
Conclusion
While Bitcoin has proven itself to be a high-performing asset, it is a very volatile yet resilient one. For anyone who wants to invest in Bitcoin, it is worth knowing why it is so resilient, what its historical market movements have been, and how to safely invest in it.
Its resilience means that it will likely retain its profitability and its place in the crypto industry for years to come. It also means that investors should seriously consider Bitcoin, among other cryptos, for inclusion in their portfolios.